NPS Tax Benefits under Section 80CCD for FY 2025-26 (AY 2026-27)
The National Pension System (NPS) is one of the few investments that offers tax benefits beyond the Section 80C limit. For FY 2025-26 returns, your own contributions get deductions in the old regime, while employer contributions under Section 80CCD(2) are deductible in both regimes.
The three NPS deductions explained
- Section 80CCD(1) — your own contribution: deduction up to 10% of salary (basic + DA) for employees, or 20% of gross total income for the self-employed. This sits within the combined Rs 1.5 lakh ceiling of Section 80C/80CCC/80CCD(1). Old regime only.
- Section 80CCD(1B) — extra Rs 50,000: an additional deduction of up to Rs 50,000 for your own Tier 1 contributions, over and above the Rs 1.5 lakh limit. Old regime only.
- Section 80CCD(2) — employer contribution: the employer's NPS contribution is deductible up to 14% of basic + DA for government employees, and from FY 2025-26 up to 14% for private sector employees as well if they are in the new regime (the old-regime limit for private employees remains 10%). This deduction does not eat into the Rs 1.5 lakh or Rs 50,000 limits.
NPS deduction limits at a glance
| Section | Who contributes | Limit | Regime |
|---|---|---|---|
| 80CCD(1) | You | 10% of salary / 20% of GTI, within Rs 1.5 lakh | Old only |
| 80CCD(1B) | You | Rs 50,000 extra | Old only |
| 80CCD(2) | Employer | 14% of basic + DA (govt; private in new regime); 10% for private in old regime | Old and New |
80CCD(2): the limit by employer type and regime
| Employee type | Old regime | New regime |
|---|---|---|
| Central / State government | 14% of basic + DA | 14% of basic + DA |
| Private sector / PSU / corporate NPS | 10% of basic + DA | 14% of basic + DA (raised from 10% by Budget 2024; applies for FY 2025-26 returns) |
| Self-employed (no employer) | Not applicable | Not applicable |
Worked examples
Salaried, old regime
Neha (basic + DA Rs 8 lakh) puts Rs 1.5 lakh in 80C items and Rs 50,000 in NPS Tier 1. She claims the Rs 50,000 under 80CCD(1B) over and above 80C. At the 30% slab this saves about Rs 15,600 in tax (including cess).
Corporate NPS, new regime
Vikram's employer contributes 14% of his Rs 10 lakh basic + DA, i.e. Rs 1,40,000, to NPS. The full amount is deductible under 80CCD(2) even though he files in the new regime, where most other deductions are not allowed.
Self-employed
Asha, a consultant with gross total income of Rs 12 lakh, contributes Rs 2.9 lakh to NPS. She claims Rs 1.5 lakh under 80CCD(1) (within 20% of GTI) plus Rs 50,000 under 80CCD(1B) — Rs 2,00,000 total in the old regime.
Private sector, old regime
Rohit's basic + DA is Rs 12 lakh and his employer puts Rs 1,44,000 (12%) into NPS. In the old regime his 80CCD(2) cap is 10%, i.e. Rs 1,20,000; the remaining Rs 24,000 is taxed as salary. In the new regime the full amount would fit within the 14% cap.
Tax on NPS withdrawal and maturity
- On normal exit at age 60, a lump sum of up to 60% of the corpus is fully tax-free; at least 40% must buy an annuity, which is also exempt at purchase.
- The monthly pension from the annuity is taxable at your slab rate in the year you receive it.
- Partial withdrawals of up to 25% of your own contributions (for specified reasons) are tax-free.
- Tier 2: withdraw anytime, but gains are taxed at your slab rate; no deduction for private sector subscribers (central government employees may claim Tier 2 under 80C with a 3-year lock-in).
Old regime vs new regime
- 80CCD(1) and 80CCD(1B) are available only in the old regime for FY 2025-26 returns.
- 80CCD(2) (employer contribution) is available in both regimes — it is one of the very few deductions the new regime keeps.
- Use our old vs new regime guide and income tax calculator to see which regime wins after your NPS deductions.
How to claim NPS deductions in your ITR
- Download proof of contribution: get the Tier 1 transaction statement for FY 2025-26 from your CRA (Protean, KFintech or CAMS) and keep your Form 16 from the employer.
- Choose the regime first: if you want 80CCD(1) and 80CCD(1B), opt for the old regime in the return; 80CCD(2) can be claimed in either regime.
- Enter your own contribution under 80CCD(1): in Schedule VI-A (Chapter VI-A deductions), within 10% of basic + DA (20% of gross total income if self-employed) and within the combined Rs 1.5 lakh ceiling of 80C/80CCC/80CCD(1).
- Enter the extra amount under 80CCD(1B): up to Rs 50,000 of Tier 1 contributions not already claimed under 80CCD(1).
- Enter the employer contribution under 80CCD(2): use the figure shown in your Form 16 — it should also appear in your salary income, with the matching deduction in Schedule VI-A.
- Verify and file: cross-check the prefilled deduction fields against your statements, then submit and e-verify your income tax return online.
Documents to keep ready
- NPS transaction statement / contribution receipts for Tier 1 (download from your CRA — Protean, KFintech or CAMS)
- PRAN card details
- Form 16 showing employer NPS contribution under Section 80CCD(2)
- Salary slips evidencing basic + DA, to verify the 10%/14% limit
Common mistakes to avoid
- Claiming the same NPS contribution under both 80CCD(1) and 80CCD(1B) — the same rupee cannot be deducted twice.
- Claiming 80CCD(1B) while filing in the new regime — it is an old-regime deduction only.
- Counting Tier 2 contributions for the Rs 50,000 extra deduction — only Tier 1 qualifies.
- Claiming employer contribution above 14% (or 10% for private sector in the old regime) of basic + DA — the excess is taxable as a perquisite, and employer contributions to PF, NPS and superannuation above Rs 7.5 lakh a year are taxable in any case.
- Ignoring 80CCD(2) just because you chose the new regime — it is one deduction the new regime still allows.
Frequently asked questions
How much tax can I save with NPS in FY 2025-26?
In the old regime you can claim up to Rs 1.5 lakh under Section 80CCD(1) (within the 80C ceiling) plus an extra Rs 50,000 under Section 80CCD(1B) — Rs 2 lakh in total for your own contributions. Employer NPS contributions are deductible separately under Section 80CCD(2).
Is any NPS deduction available in the new tax regime?
Yes, but only Section 80CCD(2) for employer contributions — up to 14% of basic salary plus DA for both government and private sector employees for FY 2025-26. The Rs 50,000 benefit under 80CCD(1B) and the 80CCD(1) deduction are not available in the new regime.
Is NPS withdrawal at 60 tax-free?
On normal exit at 60, the lump sum withdrawal of up to 60% of the corpus is tax-free and the amount used to buy an annuity is also exempt at the time of purchase. The monthly pension received from the annuity later is taxable at your slab rate.
Do NPS Tier 2 contributions get a tax deduction?
No deduction is available to private sector subscribers for Tier 2 contributions. Only central government employees can claim Tier 2 contributions under Section 80C with a 3-year lock-in. Tier 2 gains are taxed at your slab rate on withdrawal.
How do I claim NPS deductions in my ITR?
Report your own Tier 1 contribution under Section 80CCD(1) and the extra amount up to Rs 50,000 under Section 80CCD(1B) in Schedule VI-A of the ITR, and the employer contribution under Section 80CCD(2) as per your Form 16. Keep the NPS transaction statement from your CRA as proof.
Is there any ceiling on tax-free employer NPS contributions?
Yes. The 80CCD(2) deduction is capped at 14% of basic salary plus DA (10% for private sector employees in the old regime). Separately, if the employer's combined contribution to PF, NPS and superannuation exceeds Rs 7.5 lakh in a year, the excess and the return on it are taxed as a perquisite.
Get expert-assisted filing
All India ITR can verify your 80CCD(1), 80CCD(1B) and 80CCD(2) claims against your Form 16 and NPS statement, and check which regime saves you more before filing.
Related current ITR guides
More AY 2026-27 tax guides
Save tax: Home loan benefits · NPS (80CCD) · Donations (80G) · Education loan (80E) · Interest income (80TTA/80TTB) · Form 15G/15H · Capital gains exemptions (54/54F/54EC)
Investors and traders: F&O and intraday tax · ESOP and RSU tax · Share buyback tax · Foreign income and Schedule FA · Gift tax (56(2)(x)) · HUF taxation
Calculators and tools: Income tax calculator · Advance tax calculator · 80C tax-saving calculator · NPS calculator · Gratuity calculator · EPF calculator · Crypto tax calculator · HRA calculator
Filing and compliance: Section 87A rebate · Marginal relief · Form 10-IEA · PAN-Aadhaar link · AIS and TIS · ITR-U updated return · Discard ITR and condonation · TDS on rent and property · Income Tax Act 2025
Sources reviewed
- NPS Trust (PFRDA) – Tax benefits under NPS
- PIB – Union Budget 2024-25 highlights (employer NPS deduction raised from 10% to 14%)
- Income Tax Department – Salaried individuals for AY 2026-27 (Section 80CCD deductions)
This guide is for general understanding. The 80CCD(2) percentage that applies to you depends on your employer type and the regime you choose — verify your payroll figures with a tax expert before claiming.
